Money supply refers to the total amount of money in circulation within a country or region at a specific point in time. It encompasses various forms of money, such as cash and bank deposits. Money supply is a crucial macroeconomic indicator, reflecting an economy's monetary liquidity and potential inflationary pressures. Central banks manage the money supply to achieve their monetary policy objectives, including price stability and economic growth.
Classification of money supply
M0: In some countries, such as the United Kingdom, M0 includes bank reserves, so M0 is referred to as the monetary base, or narrow money.
MB: is referred to as the monetary base or total currency. This is the base from which other forms of money (like checking deposits) are created and is traditionally the most liquid measure of the money supply.
M1: Bank reserves are not included in M1.
M2: Represents M1 and "close substitutes" for M1.M2 is a broader classification of money than M1.
M3: M2 plus large and long-term deposits. Since 2006, M3 is no longer published by the US central bank.However, there are still estimates produced by various private institutions.
MZM: Money with zero maturity. It measures the supply of financial assets redeemable at par on demand.
By observing the changes in different levels of the money supply, one can understand the level of economic activity and potential inflation risks, thus providing a reference for formulating monetary policies.
